SmarTone Telecommunications Holdings Ltd. :STTFF-US: Earnings Analysis: For the six months ended June 30, 2017 : January 1, 2018

SmarTone Telecommunications Holdings Ltd. reports financial results for the half-year ended June 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 430.03 million, Net Earnings of USD 35.85 million.
  • Gross margins widened from 6.50% to 12.20% compared to the same period last year, operating (EBITDA) margins now 31.34% from 15.85%.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2016-12-31 2016-06-30 2015-12-31 2015-06-30
Relevant Numbers (Semi-Annual)
Revenues 430.03 692.57 1046.27 1319.58 1287.86
Revenue Growth (YOY) -58.9 -47.52 -18.76 17.97 48.79
Earnings 35.85 50.71 50.78 51.96 60.5
Earnings Growth (YOY) -29.39 -2.39 -16.07 -13.61 107.79
Net Margin 8.34 7.32 4.85 3.94 4.7
EPS 0.03 0.05 0.05 0.05 0.06
Return on Equity 6.11 8.87 9.39 10.15 12.5
Return on Assets 5.7 7.79 7.41 7.44 8.84

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, STTFF-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if STTFF-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -37.91% and earnings by -29.31% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 6.50% to 12.20%, while operating margins improved from 15.85% to 31.34% over this period. For comparison, gross margins were 9.81% and EBITDA margins 23.23% in the immediate last period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

STTFF-US’s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days are now -2.42 days compared to 62.10 days for the same period last year.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 6.50% to 12.20% and (2) one-time items. The company’s pretax margins are now 10.69% compared to 5.86% for the same period last year.

EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for SmarTone Telecommunications Holdings Ltd.

Company Profile

SmarTone Telecommunications Holdings Ltd. operates as an investment holding company. It provides telecommunications services which include selling handsets and accessories, voice, multimedia and mobile broadband services, as well as fixed fiber broadband services for the consumer and corporate markets. The company was founded in 1992 and is headquartered in Hong Kong.

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